China’s big developers saw sales decline in May on property curbs
Developers encounter difficulty gaining pre-sale permits, exacerbating supply shortage
China’s top three mega developers, which represent a tenth of the country’s market, saw their contracted sales drop 14.4 per cent month on month in May as property tightening measures continue to weigh on the market and developers delay sales amid price controls.
The big three delivered combined sales of 114.1 billion yuan (US$16.79 billion) for the month compared with 133.3 billion in April, according to their public filings.
Country Garden, the country’s largest developer by sales, posted the largest slump among the three: contracted sales fell by a quarter from 53.5 billion yuan in April to 40 billion yuan in May.
China Vanke saw its May sales total 35.9 billion yuan, down 14.3 per cent over April, while China Evergrande Group’s sales rose from 37.85 billion yuan in April to 38.2 billion in May.
Signs of sequential weakness were seen in April. This is likely extending into May, given vigorous policy tightening…we expect sales to slow nationally for the rest of the year,” JP Morgan China’s property team wrote in a June 1 research note.
The combined contracted April sales of 26 Hong Kong-listed mainland developers fell an average of 19 per cent over March after a large number of city governments stepped up property tightening.
Down payments for second-time home buyers in first and many second-tier cities were raised to 60 to 80 per cent, while mortgage rates for first and second-time buyers were also raised.
Of the dozen or so developers that had released their May data up to Tuesday, most reported sequential drops or little change. Wanda Group saw the largest slump of 58 per cent, according to China Real Estate Information Corp, a consultancy tracking nationwide sales. Wanda is unlisted so it doesn’t disclose its monthly sales.
Industry insiders told the South China Morning Post that the sales slump is due more to limited supply rather than weak demand. According to E-House Holdings, new home supply in May was 22 per cent down from a year ago, the lowest for the past three years. This is because many city governments refused to grant pre-sale permits to developers they deemed were charging “excessively high” prices, while developers couldn’t accept government caps that meant no profit or even losses.
“Developers are under huge pressure. A Shanghai suburban project at the beginning of the year could gain pre-sale permits that allowed it to sell at 68,000 yuan per square metre. The developer didn’t launch the sale as it deemed the price unacceptable. By May when it applied for the permits, the cap became 58,000 yuan,” said Ding Zuyu, chief executive of E-house.
“But when few new projects are on sale, available homes quickly sell out, underlining the pent-up demand,” he added.
An executive with Beijing Capital Land, who requested anonymity, told the Post that price controls through pre-sale permits were putting heavy pressure on developers. As a result, the company is slowing its pace of launching new sales, and slowing the pace of land acquisitions.
The purchase curbs were also expanding to satellite cities around major cities, curbing sales and price rises. For example, average home prices had surged 40 per cent in Zhenjiang and Yangzhou after many Nanjing residents were restricted from buying homes and flocked to the two nearby cities. In March Zhenjiang imposed curbs on non-locals buying homes and sales turnover in April tumbled nearly two thirds.
“The tide is turning. Enthusiasm for homes have waned considerably,” said Jackson Hui, an analyst with China Merchants Securities International, after recent visits to Nanjing.
Some developers were particularly hurt by bans on commercial flats being sold to individuals. Thaihot Group, a Fujian-based developer which expanded aggressively in the past few years in larger cities, mainly by selling units built on commercial and office land, saw a 55 per cent slump in May sales. CIFI Holdings, another Fujian developer that relied on commercial flats, saw flat growth in May but sales have fallen 18 per cent from March.